Mining Institutions

7. State-owned mining companies

As noted earlier in this document, state-owned mining companies can take different forms. They can either be set up to mine independently and have the same organisational look as a private sector mining company. They can be holding companies for government shares in private sector mines, or both. Some state-owned mining companies are integrated into the department of mines in a particular country. In these cases, these companies report directly to the most senior official in the mines institution.

An example of a state-owned mining company that has been structured like a private sector company is a diamond mining company in South Africa. Alexkor was established on the basis of the Alexkor Limited Act, 1992. The company is owned by the government of South Africa, represented by the government through the Minister of Public Enterprises. The company has two divisions or business units. One is responsible for mining and the other is the corporate unit. The core business of the company is to mine diamonds on land and in the marine environment. The company has an exploration and geology arm as well as an environmental rehabilitation function. In South Africa, the private sector is largely responsible for developing the mineral resources. The national government does have some involvement, however, in strategic minerals. While Alexkor, as a commercialised state asset, is not perceived as a strategic asset in the national sense, it has significant strategic importance for the Namaqualand region located in northwest South Africa. This is a very poor and sparsely populated area of South Africa. Alexkor is the main economic generator in the region, and as such has branched out to develop many non-core business activities.

The non-core business activities that employee many local people in the area include management of guest houses, provision of community services, engineering services, and transport services. The operation also supports a fuel station and an airport.

Other examples of a state-owned mining company that may be structured like a private sector company but is 100% government owned is BCL mine in Botswana. This copper/nickel mine has operated for many decades and has also supported the creation of town infrastructure and a wide range of spin-off activities. Unfortunately, BCL recently announced liquidation as it was too expensive for government to continue to support it financially. Similarly, Alexkor has gone through very difficult periods in the last several decades due to poor management and lack of profitability. When government owns a mining operation and has the resources to prop up operations in times of commodity downturns, and other low periods, there is a danger that the mine will never be able to be profitable on its own. This is particularly true when the mine is engaged in many non-core activities that may shift management’s focus.

Alexkor is managed by a Board of Directors that is headed by a Chairperson who reports to the Minister of the Department of Public Enterprises. It is subject to various corporate governance standards.

An example of a different structure where the state-owned mining company is integrated into the department responsible for mineral development is the Punjab Mineral Development Corporation located in Punjab Province, Pakistan. Under the PMDC is Punjamin, the public sector mining institution that is responsible for exploration, mining and marketing of the province’s industrial minerals. It was established in 1975 under the Punjab Mineral Development Corporation Act. As well as mining industrial minerals, it also supports private sector small scale miners involved in the mining of these minerals. There is a Board of Directors that reports to an appointed Chairperson. The composition of the Board comprises a number of different government departments or bodies.

This is an example where the state-owned mining company is fully integrated and run by government. It may be an appropriate model in countries that have not yet developed large-scale mining, or that have not been successful for various reasons in attracting foreign owned global companies that have the financial and technical capacity to develop larger scale projects.